CONSTELLATION SOFTWARE INC - Annual Information Form March 27, 2020
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CONSTELLATION SOFTWARE INC.
Annual Information Form
March 27, 2020CONSTELLATION SOFTWARE INC.
ANNUAL INFORMATION FORM
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS .................................................................................................1
CORPORATE STRUCTURE ...................................................................................................................2
NAME AND INCORPORATION .....................................................................................................................2
INTERCORPORATE RELATIONSHIPS ...........................................................................................................3
GENERAL DEVELOPMENT OF THE BUSINESS ................................................................................7
OVERVIEW...............................................................................................................................................7
ACQUISITIONS..........................................................................................................................................8
RIGHTS OFFERINGS...................................................................................................................................9
DESCRIPTION OF THE BUSINESS ..................................................................................................... 10
OVERVIEW............................................................................................................................................. 10
BUSINESS STRATEGY ............................................................................................................................. 10
OPERATING GROUPS .............................................................................................................................. 12
PRODUCTS ............................................................................................................................................. 16
SALES AND DISTRIBUTION STRATEGY ..................................................................................................... 16
RESEARCH AND DEVELOPMENT .............................................................................................................. 16
INTELLECTUAL PROPERTY ...................................................................................................................... 16
FOREIGN OPERATIONS............................................................................................................................ 17
COMPETITION ........................................................................................................................................ 17
EMPLOYEES ........................................................................................................................................... 17
RISK FACTORS ....................................................................................................................................... 17
DIVIDENDS............................................................................................................................................. 29
DESCRIPTION OF CAPITAL STRUCTURE ....................................................................................... 30
MARKET FOR SECURITIES ...................................................................................................... 34
ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION
ON TRANSFER ....................................................................................................................................... 35
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY ................................................... 36
BIOGRAPHIES ......................................................................................................................................... 37
COMMITTEES OF THE BOARD .................................................................................................................. 41
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS ....................... 42
LEGAL PROCEEDINGS ........................................................................................................................ 43
TRANSFER AGENT AND REGISTRAR .............................................................................................. 43
INTERESTS OF EXPERTS .................................................................................................................... 43
CONFLICTS OF INTEREST ................................................................................................................. 43
ADDITIONAL INFORMATION ............................................................................................................ 43CONSTELLATION SOFTWARE INC.
ANNUAL INFORMATION FORM
All references in this Annual Information Form to ‘‘CSI’’, the ‘‘Company’’, ‘‘we’’, ‘‘us’’, ‘‘our’’ and ‘‘our
company’’ refer to Constellation Software Inc. and its subsidiaries, unless the context requires otherwise.
Unless otherwise indicated, all references to dollar amounts herein are to United States dollars.
All information contained herein is as at December 31, 2019 unless otherwise noted.
FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Information Form may constitute “forward-looking” statements
which involve risks (including those which may arise in the future), uncertainties and other factors
which may cause the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or achievements expressed or
implied by such forward-looking statements. When used in this Annual Information Form, such
statements use such words as “may”, “will”, “expect”, “believe”, “plan”, “intend” and other similar
terminology. These statements reflect current expectations regarding future events and operating
performance and speak only as of the date of this Annual Information Form. Forward-looking
statements involve significant risks and uncertainties, should not be read as guarantees of future
performance or results, and will not necessarily be accurate indications of whether or not such results
will be achieved. A number of factors could cause actual results to differ materially from the results
discussed in the forward-looking statements, including, but not limited to, the factors discussed under
“Risk Factors”. Although the forward-looking statements contained in this Annual Information
Form are based upon what management of the Company believes are reasonable assumptions, the
Company cannot assure investors that actual results will be consistent with these forward looking
statements. These forward-looking statements are made as of the date of this Annual Information
Form and, except as may be required by law, the Company assumes no obligation to update or revise
them to reflect new events or circumstances.
1CORPORATE STRUCTURE
Name and Incorporation
The Company was incorporated under the Business Corporations Act (Ontario) on August 23, 1995.
On March 7, 2000, the Company amalgamated with e2 Inc. and on June 29, 2000, the Company filed
articles of arrangement, authorizing the transfer of all of the shares of Friedman Acquisition Corp.,
Creative Computer Solutions Inc. and Memory Lane Systems Inc., each a then wholly-owned
subsidiary of the Company, to Constellation Software USA Inc. In connection with the arrangement,
the Company issued 85,672 common shares in exchange for 259,595 common shares of N. Harris
Computer Corporation and 667,013 common shares in exchange for 250,691 common shares of
Trapeze Software Inc. The Company amalgamated with Constellation Justice Systems Inc. on March
1, 2002.
Concurrently with the closing of its Initial Public Offering on May 18, 2006, the Company’s share
capital was reorganized to remove the previously existing series 1 and series 2 common shares, and
to redesignate the previously existing series 3 common shares as Common Shares (the “Common
Shares”).
On October 2, 2013, the Company’s shareholders (i) adopted a special resolution authorizing and
approving an amendment to the articles of the Company in order to remove the Class A Non-Voting
Shares, and (ii) adopted a special resolution authorizing and approving an amendment to the articles
of the Company in order to create a new class of preferred shares designated as Class A Preferred
Shares (“Preferred Shares”), to be issuable at any time and from time to time at the discretion of the
Board of Directors of the Company (the “Board” or the “Board of Directors”) in one or more series.
Articles of amendment reflecting these changes to the Company’s authorized capital were filed on
March 28, 2014.
The Company’s head and registered office is located at 20 Adelaide Street East, Suite 1200, Toronto,
Ontario, Canada, M5C 2T6, telephone: (416) 861-2279, Web-site: www.csisoftware.com. The
contents of the Company’s web-site are not incorporated by reference into this Annual Information
Form.
2Intercorporate Relationships
The following list outlines, as at March 27, 2020, each of our material subsidiaries. Unless otherwise
indicated, each material subsidiary is owned 100%, either directly or indirectly, by CSI.
Gove rning
Entity Name Juris diction
He ad Office :
Canadian Software Investment Fund Inc. Ontario
Constellation Netherlands Financing B.V. Netherlands
Constellation Software Australia Pty Ltd Australia
Constellation Canadian Holdings Inc. Ontario
Constellation Software UK Holdco Ltd. England and Wales
Constellation Management Inc. Ontario
Constellation Software Japan Inc.* Japan
Volaris Ope rating Group:
Volaris Group Inc. Ontario
Apdata Do Brasil Software Ltda. Brazil
Incadea Holding GmbH Austria
Incadea GmbH Germany
Empresa 1 – Sistemas de Automaçao - Eireli Brazil
Baseplan North America, Inc. Delaware
Baseplan Software Pty Ltd. Australia
Criterions Software, Inc. Delaware
incadea (Beijing) Information and Technology Co. Ltd. China
Velocix Solutions Limited England and Wales
Windward Software Systems Inc. British Columbia
Citatti Tecnologia - Eireli Brazil
Helm Operations Software Inc. Ontario
Holocentric Pty Ltd. Australia
Bonanova Limited Cyprus
BBT Software AG Switzerland
Catertrax Inc. Delaware
SpecTec Group Holding Limited Cyprus
SpecTec Spa Italy
SpecTec Ltd. England and Wales
Volaris Group Holdings Inc. Ontario
Trapeze Software ULC Alberta
Trapeze ITS Luxembourg S.a.r.l Luxembourg
Trapeze Germany GmbH Germany
Trapeze Switzerland GmbH Switzerland
Trapeze Software Group Inc. Delaware
AssetWorks LLC Delaware
Cultura Technologies LLC Delaware
CourtView Justice Solutions Inc. Delaware
Northpointe Inc. Delaware
Wynne Systems Inc. California
Trapeze Group Europe Holdings A/S Denmark
Trapeze Group (UK) Limited England and Wales
Travis Software Inc. Delaware
Portfolio+ Incorporated Ontario
Policy Processing Systems Technology Corporation Delaware
MDS Global Ltd. England and Wales
Gallery Systems Inc. New York
Elgeba-Gerätebau GmbH Germany
Trapeze Software Pty Ltd. Australia
Incognito Software Systems Inc. British Columbia
Incognito Interactive Limited Ireland
Kinetic Solutions Limited England and Wales
Cultura Technologies Ltd. England and Wales
Kinetic Software Inc. Massachusetts
Information Distribution & Marketing Inc. Georgia
Softlink Australia Pty Ltd. Australia
PLANit Sweden AB Sweden
Primoris Services LLC Georgia
Tibersoft Technologies Inc. Delaware
Trapeze Group Asia Pacific Pty Ltd. Australia
Smartrak Australia Pty Ltd. Australia
Smartrak Limited New Zealand
Smartrak Systems Limited New Zealand
Systemtechnik Gmbh Germany
Shipnet USA, Inc. Delaware
Shipnet Asia Pte Ltd. Singapore
Telepin Software Systems Inc. Ontario
Netadmin System I Sverige AB Sweden
The Alpha School System Pty Ltd. Australia
Wellington Computer Systems Limited Northern Ireland
* Constellation Software, owns 60% of Constellation Software Japan Inc.
3Gove rning
Entity Name Juris diction
Harris Ope rating Group:
N. Harris Computer Corporation Ontario
PG Solutions Inc. Canada
PG Govern Inc. Canada
Medisolution (2009) Inc. Canada
Cogsdale Corporation Canada
Harris Systems USA Inc. Delaware
Harris Local Government Solutions, Inc. Delaware
Connecture, Inc. Delaware
Computer Software Innovations, Inc. Delaware
Manatron, Inc. Delaware
Delta Computer Systems Inc. Mississippi
Gateway Electronic Medical Management Systems Inc. Delaware
Digichart, Inc. Delaware
Mitchell & McCormick Inc. Georgia
Acceo Solutions, LP. Ontario
Acceo Solutions Inc. Canada
Acceo Technologies Inc. Canada
Onhand Schools, Inc. Pennsylvania
Media-X Systems Inc. Canada
JR3 Websmart, LLC Texas
MEDfx Corporation Rhode Island
Gtechna USA Corporation Delaware
Accovia France S.A.R.L. France
Creditron Canada, Inc. Ontario
Morcare, LLC Illinois
Systems & Software Inc. Vermont
Harris (US) Computer Corporation Delaware
Quintessential School Systems California
Prosoft Technologies Inc. Pennsylvania
Iatric Systems, Inc. Delaware
Picis Clinical Solutions Inc. Delaware
SmartCOP Inc. Florida
Capital Computer Associates Inc. New York
QuadraMed Corporation Delaware
QuadraMed Canada Corporation Nova Scotia
Syscon Justice Systems Canada Inc. British Columbia
TAC 10 Inc. Iowa
Caretracker Inc. Delaware
InterAct911 Corporation Delaware
I.M.D Parent Ltd. Israel
I.M.D Soft Ltd. Israel
I.M.D Soft Inc. Nevada
Harris Computer Germany Gmbh Germany
Salar Inc. Maryland
SIV Utility Service Gmbh Germany
SIV Software Architektur und Technologie GmbH Germany
SIV- Service für Informationsverarbeitung Aktiengesellschaft Germany
SIV Bulgaria EOOD Bulgaria
Jonas Ope rating Group:
Gary Jonas Computing Ltd. Canada
Jonas Software USA LLC Delaware
Jonas Software NZ Limited New Zealand
SMS Software Holdings LLC Delaware
Diamond Touch Inc. Texas
Greycon Limited England and Wales
Greycon North America Inc. Alabama
Happen Business Pty Ltd. Australia
Jonas Computing (UK) Ltd. England and Wales
Youbill, Inc. Pennsylvania
Automatic Netware Limited Ireland
London & Zurich Limited England and Wales
Card Management Services Limited England and Wales
CRB Solutions Limited Scotland
Innosoft Canada Inc. Ontario
Computrition Inc. California
Gladstone Limited England and Wales
EZ Facility Inc. Delaware
Gladstone MRM Limited England and Wales
Jonas Fitness Inc. Delaware
Kestral Computing Pty Limited Australia
Shortcuts Software Pty Limited Australia
Magic Pulse Ltd. New Zealand
Shortcuts Software (UK) Limited England and Wales
Shortcuts Software Inc. Delaware
Salon Software Solutions Limited England and Wales
Kitomba Australia Pty Ltd. Australia
MCR Systems Limited England and Wales
Resolve Software Group Pty Ltd. Australia
Cunningham Cash Registers Limited England and Wales
4Gove rning
Entity Name Jurisdiction
Ve la Ope rating Group:
Emphasys Computer Solutions, Inc Michigan
acQuire Technology Solutions Pty Ltd Australia
Aurum Software Ltda. Brazil
Vela Software Norway Norway
Metech Holding Pty Ltd. Australia
Application Oriented Designs Inc. Florida
Sympro Inc. California
Friedman Corporation Illinois
Friedman Canada Inc. Ontario
Varsity Logistics Inc. California
Vela Software International Inc. Ontario
Vela Software Ireland Limited Ireland
Markinson Technologies Pty Ltd. Australia
Markinson Software Solutions Pty Ltd. Australia
Juniper Consulting, S.L. Spain
ASA Automotive Systems Inc. Delaware
A&W Software GmbH Germany
Freestyle Software Inc Delaware
Nedsense Nedgraphics B.V. Netherlands
NedGraphics Inc. Delaware
Megabus Software Pty Ltd. Australia
Datamine Corporate Limited England and Wales
Datamine International Limited England and Wales
Datamine Africa (Pty) Limited South Africa
CAE Datamine Peru S.A. Peru
Computer Engineering Inc. Missouri
IN2 d.o.o. Croatia
IGEA d.o.o Croatia
INbet2 d.o.o. Croatia
IN2data d.o.o. Croatia
Datamine Australia Pty Ltd. Australia
Petrosys Pty Ltd. Australia
Fieldview CFD, Inc Delaware
Future Business Systems Pty. Ltd. Australia
Tecplot Inc. Washington
Halcom d.d. Slovenia
Atex Pty Ltd. Australia
Atex Media Limited England and Wales
Polopoly AB Sweden
Atex Global Media S.a.r.l. France
Atex Media Command AB Sweden
Shoplogix Inc. Ontario
Add Novatech AS Norway
Financial Risk Solutions Limited Ireland
Apparel 21 Pty Ltd. Australia
Pe rse us Ope rating Group:
Constellation Homebuilder Systems Inc. Delaware
Constellation Homebuilder Systems Corp. Ontario
CAKE Software Inc. Delaware
C Systems Software Inc. Texas
G1440 Inc. Delaware
Z57, Inc. California
Clinical Computing Inc. Ohio
Dealer Information Systems Corporation Washington
Majiq Inc. Delaware
POMS Corporation Delaware
Ideal Computer Systems Inc. Iowa
Campana Systems Inc. Ontario
Constellation Web Solutions Inc. Delaware
Quantitative Medical Systems, Inc. California
Monolith Corporation North Carolina
Zurple, Inc. Delaware
Ibcos Holding Limited England and Wales
5Gove rning
Entity Name Juris diction
Total Spe cific Solutions Ope rating Group*:
Constellation Software Netherlands Holding Coöperatief U.A.* Netherlands
Total Specific Solutions (TSS) B.V. Netherlands
TSS Europe B.V. Netherlands
TSS Management B.V. Netherlands
ACA Groep Holdings B.V. Netherlands
ACA Fashion Software B.V. Netherlands
Notarissoftware Nederland B.V. Netherlands
Dataplaza B.V. Netherlands
KZA B.V. Netherlands
PharmaPartners B.V. Netherlands
H.I. Systems B.V. Netherlands
PinkRoccade Healthcare B.V. Netherlands
PinkRoccade Healthcare Gezondheidszorg B.V. Netherlands
PinkRoccade Local Government B.V. Netherlands
Blueriq B.V. Netherlands
Stadsbeheer B.V. Netherlands
Kred'IT B.V. Netherlands
Quantaris B.V. Netherlands
Vicrea Solutions B.V. Netherlands
NCCW B.V. Netherlands
Itris B.V. Netherlands
Magenta Multimedia Tools B.V. Netherlands
Niveo B.V. Netherlands
Prequest Nederlands B.V. Netherlands
Accountancy Portal Solutions B.V. Netherlands
Windex Bedrijfssoftware B.V. Netherlands
Emergo Systems B.V. Netherlands
Cosoluce SAS France
GTHL-CIL SARL France
Heliantis SAS France
Infoflex Data AB Sweden
Prohandel Gmbh Germany
Forsikringens DataCenter A/S Denmark
CCI Groep B.V. Netherlands
Total System Development B.V. Netherlands
KMO Solutions B.V. Netherlands
Notubiz Holding B.V. Netherlands
Notubiz Nederland B.V. Netherlands
Notuleerservice Nederland B.V. Netherlands
NotuBiz Belgirum bvba Belgium
Hercules Social Housing B.V. Netherlands
Divide B.V. Netherlands
Mediamaestro Oy Finland
Ergovia Gmbh Germany
Dynamic Software D.S. N.V Denmark
Tri-ennium Software B.V. Netherlands
NPQ Nederland B.V. Netherlands
Korton Software B.V. Netherlands
Korton Personeelsplanner B.V. Netherlands
OneTrail Holding B.V. Netherlands
Civity B.V. Netherlands
OneTrail B.V. Netherlands
Onetrail UK Ltd. England and Wales
Nostradamus ICT B.V. Netherlands
Square Information Solutions B.V. Netherlands
Microcash Retail B.V. Netherlands
Ofimática TSS S.L. Spain
RTS Remote Terminal System Srl Italy
RTS Remote Terminal System S.L. Spain
FDT-System AB Sweden
TSS Nordic AB Sweden
Felix Informatique SAS France
TSS Finland Oy Finland
Arter Oy Finland
Metamicro SAS France
TSS France Holdco B.V. France
New Co Sab 64 France
Salvia Développement SAS France
SRCI SAS France
Alteva SAS France
Technidata SAS France
Technidata France SAS France
Services Technidata Canada Inc. Quebec
Technidata Medical Software Engineering GmbH Germany
Technidata America Medical Software LLC Arizona
Technidata UK Ltd. England and Wales
Technidata Benelux B.V. Netherlands
Technidata Italia Srl Italy
Technidata Asia Phillippines
Technidata Inc. Phillippines
Technidata Ltd. Hong Kong
wiko Business Academy GmbH Germany
3pleP Development GmbH Germany
Wiko Bausoft GmbH Germany
Atolix GmbH Germany
Yonder Nederland B.V. Netherlands
Yonder SRL Romania
* Constellation Software, through certain of its wholly owned subsidiaries, owns 66.71% of
Constellation Software Netherlands Holding Coöperatief U.A., the parent company of the TSS
Operating Group.
6GENERAL DEVELOPMENT OF THE BUSINESS
Overview
Constellation Software Inc. is a global provider of enterprise software solutions serving a variety of
distinct vertical markets. The Company is organized around two reportable segments: (i) the public
sector segment, which primarily includes businesses focused on government and government-related
customers, and (ii) the private sector segment, which primarily includes businesses focused on
commercial customers. As at March 27, 2020, the vertical markets in which we participate include:
Public Sector:
Public transit operators Asset management Municipal systems
Para transit operators Fleet and facility management School administration
School transportation District attorney Public safety
Non-emergency medical Taxi dispatch Healthcare
Ride share Benefits administration Rental
Local government Insurance Electric utilities
Agri-business Collections management Court
Marine asset management Water utilities School and special library
Communications Credit unions Drink distribution
Higher education Financial services Notaries
Fashion retail Pharmacies Long-term care
Home and community care County systems Research management
Retail management and distribution Public housing authorities Not-for-profit organizations
Automotive Accountancy Catering
Small and medium sized Property management Food services
businesses sector
Creative agencies Commercial printing Horticulture
Event management Distillery Hospitality
Manufacturing plant performance Advertising and marketing Project management
Quality management Real estate brokers and agents Compliance
Human resources and payroll Parking Manufacturing design
Education
7Private Sector:
Private clubs and daily fee golf Lease management Window manufacturers
courses
Construction Winery management Cabinet manufacturers
Food services Buy here pay here dealers Made-to-order manufacturers
Health clubs RV and marine dealers Window and other dealers
Moving and storage Pulp and paper manufacturers Multi-carrier shipping
Metal service centers Agriculture equipment dealers Supply chain optimization
Attractions Outdoor equipment dealers Multi-channel distribution
Leisure centers Education Wholesale distribution
Retail management and Healthcare electronic medical Homebuilders
distribution records
Radiology and laboratory Pharmaceutical and biotech Third party logistics warehouse
information systems manufacturers management systems
Product licensing Event management Financial services
Tire distribution Salons and spas Association management
Housing finance agencies Municipal treasury and debt Public housing authorities
systems
Tour operators Auto clubs Real estate brokers and agents
Long-term care Textiles and apparel Home and community care
Hospitality Mining Ombudsman
Aerospace Design and welding Manufacturing plant
performance
Oil and gas Publishing Marinas
Small and medium sized Healthcare Automotive
businesses sector
Local government Legal Grocery
Advertising and marketing Field service Inspections and management
Asset management Waste management systems
The Company entered the waste management systems vertical via acquisition in 2020. The Company
increased our exposure to the distillery vertical and entered the advertising and marketing, project
management, quality management, compliance, human resources and payroll, parking,
manufacturing design, legal, grocery, field service, and inspections and management verticals via
acquisition in 2019. The Company entered the small and medium sized businesses sector and
marinas, property management, creative agencies, commercial printing, and horticulture, verticals
via acquisition in 2018. The Company entered the design and welding, manufacturing plant
performance, automotive, oil and gas, publishing, accountancy, and catering verticals via
acquisitions in 2017.
Acquisitions
During the year ended December 31, 2019, the Company completed a number of acquisitions for
aggregate cash consideration of $549 million plus cash holdbacks of $102 million and contingent
consideration with an estimated fair value of $37 million resulting in total consideration of $688
million, compared to aggregate cash consideration of $523 million plus cash holdbacks of $100
million and estimated fair value of contingent consideration of $8 million in the prior year resulting
in total consideration of $631 million.
On December 31, 2013, the Company acquired 100% of the shares of Netherlands based Total
Specific Solutions (TSS) B.V. (“TSS”). TSS is one of the largest vertical market software (“VMS”)
businesses based in the Netherlands, with offerings for the general practitioner, pharmacy, long term
care, mental care, property tax and civil affairs markets. It also owns several non-VMS businesses,
8primarily involved in information technology services. Total consideration for the transaction was
€240 million before adjusting for net tangible asset adjustments and claims under the representations
and warranties of the purchase and sale agreement. The Company filed a business acquisition report
on Form 51-102F4 in respect of the acquisition of TSS on March 6, 2014. On December 23, 2014,
in accordance with the terms of the purchase and sale agreement for the TSS acquisition, the sellers
of TSS along with certain members of TSS’ executive management team (collectively, the “minority
owners”) entered into a members agreement with CSI (the “Members Agreement”) pursuant to which
the minority owners acquired 33.29% of the voting interests in Constellation Software Netherlands
Holdings Cooperatief U.A. (the “Coop”). Proceeds from this transaction in the amount of €39.4
million (US$48.5 million) were utilized to repay, in part, a term loan facility obtained for the purpose
of funding the TSS acquisition. In accordance with IFRS, 100% of the financial results for TSS are
included in the consolidated financial results of the Company. Each of the minority owners may, at
any time, exercise a put option to sell all or a portion of their interests in the Coop back to CSI for
an amount calculated in accordance with a valuation methodology described within the Members
Agreement. Accordingly, the Company classified the proceeds from the Members Agreement as a
liability. The main valuation driver in such calculation is the maintenance and other recurring
revenue of the Coop. Upon the exercise of a put option, Constellation would be obligated to redeem
up to 33.33% of the minority owners’ interests that are subject to the put, no later than 30 business
days from the date notice is received (classified as a current liability), and up to 33.33% on each of
the first and second anniversaries of the date the first redemption payment is made. Commencing at
any time after December 31, 2023, CSI may exercise a call option to purchase all of the minority
owners’ interests in the Coop, for an amount calculated in accordance with a valuation methodology
described within the Members Agreement. Upon exercise of the call option, the full purchase price
will be paid within 30 business days of the notice date, following which the minority owners’
membership in the Coop will be terminated. There is a valuation premium if the call option is
exercised versus the put option.
Rights Offerings
In 2014, the Company completed a rights offering (the “2014 Rights Offering”) pursuant to which
each holder of Common Shares was issued one right for each Common Share held. For every 21.192
rights held, holders of rights were entitled to subscribe for C$100 principal amount of unsecured
subordinated floating rate debentures, Series 1 of the Company at a price of C$95 per C$100 of
principal amount of Debentures purchased.
On October 1, 2014 and November 19, 2014, the Company issued two tranches of Debentures in
connection with the 2014 Rights Offering, with a total principal amount of C$96.0 million for total
proceeds to the Company of C$91.2 million. The proceeds were used by the Company to pay down
$81.2 million of its existing bank indebtedness.
In 2015, the Company completed another rights offering (the “2015 Rights Offering”) pursuant to
which each holder of Common Shares was issued one right for each Common Share held. For every
10.596 rights held, holders of rights were entitled to subscribe for C$100 principal amount of
unsecured subordinated floating rate debentures, Series 1 of the Company at a price of C$115 per
C$100 of principal amount of Debentures purchased.
On September 30, 2015, the Company issued one tranche of Debentures in connection with the 2015
Rights Offering with a total principal amount of C$186.2 million for total proceeds to the Company
of C$214.1 million. The proceeds were used by the Company to pay down its existing bank
indebtedness. The Debentures issued in connection with the 2015 Rights Offering were issued as an
additional tranche of, and are treated as a single series with, the outstanding C$96.0 million aggregate
9principal amount of Debentures issued in connection with the 2014 Rights Offering.
See “Description of Capital Structure – Debentures”.
DESCRIPTION OF THE BUSINESS
Overview
We acquire, manage and build VMS businesses. Generally, these businesses provide mission critical
software solutions that address the specific needs of our customers in particular vertical markets.
Our focus on acquiring businesses with growth potential, managing them well and then building
them has allowed us to generate significant cash flow and revenue growth.
Using a combination of proprietary software and market expertise, we provide software solutions
designed to enable our customers to boost productivity, operate more cost effectively, increase sales
and improve customer service and satisfaction.
Many of the VMS businesses that we acquire have the potential to be leaders within their particular
markets. We target the VMS sector because of the attractive economics that it provides and our
belief that our management teams have a deep understanding of those economics.
Business Strategy
Given our extensive acquisition experience and successful track record, we believe that we are well
positioned to identify, acquire, manage and build attractive VMS businesses in new markets. We
seek acquisitions that provide software solutions to either the public or private sectors.
When one of our acquired VMS businesses is being operated efficiently, we encourage their
management to build their business through a combination of organic growth and acquisitions of
other VMS businesses in the same vertical market. We often enter new vertical markets through
acquisitions of VMS businesses in markets in which we do not currently operate.
We believe that we will continue to expand our existing businesses through organic growth initiatives
aimed at increasing our market share and product breadth. We will also continue to identify and
complete acquisitions in our existing vertical markets. Our decentralized VMS management teams
have extensive knowledge of their markets and deep customer relationships. This enables them to
successfully identify, pursue, structure, acquire and then coach businesses post-acquisition.
We also seek to acquire attractive VMS businesses in new markets to deploy our free cash flow at
attractive returns. Historically, we have retained the majority of the managers from the businesses
that we have acquired, which has allowed us to retain the knowledge needed to manage and
successfully build these businesses.
Our VMS businesses typically generate significant cash flows which we redeploy to build our
existing VMS businesses and acquire new ones.
We prefer to acquire VMS businesses with the following characteristics: Growing business with a
diversified customer base, high relative market share and capital constrained competitors. We
sometimes acquire VMS businesses with concentrated customer bases, low relative market share and
well-funded competitors. We do so when we believe that the correct combination of customer
relationship management and market segmentation will lead to attractive returns.
10Our decentralized management structure is key to our continued revenue growth. We have
experienced management teams operating in each VMS business, backed by infrastructure at the
operating group level and a small corporate head office. The corporate head office provides financial
and strategic expertise with respect to capital allocation, acquisitions, finance, tax, and compensation
policy, and attempts to identify and share best practices.
We have six operating groups which currently service customers in more than 100 different vertical
markets worldwide. There are many VMS business units within each of our operating groups. Each
VMS business unit has a manager and separately tracked financial reporting. We monitor and
measure each VMS business unit’s performance through operating ratios and metrics including
profitability and growth. The majority of our senior managers’ incentive compensation is linked to
these two performance metrics.
Each of our VMS business managers is motivated to administer their business in a highly-focused
manner. They are encouraged to leverage their respective market knowledge in order to maximize
the growth opportunities, profitability and return on invested capital within their business. Our
corporate head office sets investment return objectives.
Our decentralized management structure allows us to have business unit management teams with
strong customer relationships and deep market knowledge that are more focused and responsive than
would be the case under a centralized management model. These teams provide our corporate head
office and operating group managers with the ability to concentrate on issues such as capital
allocation, identifying best practices, and helping recruit and coach high potential employees, while
the VMS business managers concentrate on operating efficiency, and pursuing organic initiatives
and acquisitions in our existing vertical markets.
We establish from time to time, what we consider to be an acceptable after-tax internal rate of return
(“IRR”) as a hurdle rate for all of our new initiatives and acquisitions.
All of our operating group cash flow (excluding operating cash flows from those entities which have
stand-alone debt without recourse to Constellation Software Inc.) is notionally available to our
corporate head office. Capital is allocated amongst individual management teams based upon
projected IRR which is influenced by the relative attractiveness of a market, the strategic position of
the VMS business and the management team’s performance. Corporate head office approves all
acquisitions that involve the investment of more than $20 million. In practice, the operating group
cash flow is offset against their approved investments in acquisitions and internal investment
initiatives and only the remainder is returned to head office.
The objective of our compensation plan is to reward employees for working towards our corporate
goal of increasing shareholder value. We believe that shareholder value is created by managing two
financial components over the long term: profitability and growth. As such, our bonus plan
compensates employees at many levels of our organization based upon the profitability and revenue
growth of their operating group or business unit, as applicable. The long-term focus is accomplished
by mandating that at least 25% of the incentive compensation for the majority of our senior
employees who earn in excess of $75,000 per annum and have bonuses in excess of $10,000 per
annum be reinvested in shares of the Company that are subject to restrictions on resale for a period
of three to ten years. At a minimum, these restrictions require employees to hold 100% of their
shares for the first two years following acquisition, and then one third of such shares may be sold in
each of years three, four and five. Senior executives are required to invest 75% of their bonus in
shares of the Company that are subject to the same restrictions on resale for a period of three to ten
years. Once every five years, employees may elect to receive 100% of their bonus in cash.
11Our bonus plan encourages employees to participate through share ownership in the value that they
have created.
Operating Groups
The primary geographic markets that CSI operates in are North America, Continental Europe, UK
and Australia (“Primary Geographic Markets”). The following table shows, by operating segment
as at March 27, 2020, our six operating groups, the Primary Geographic Markets, location of
significant offices, and the primary vertical markets in which they operate:
Operating Primary Location of Primary Vertical Markets
Group Geographic Significant Offices
Markets
Public Sector
Segment
Volaris North America, Canada, United States, Accountancy
Operating Group Continental Italy, Germany, China, Advertising and marketing
Europe, UK, Norway, India, United Agribusiness
Australia Kingdom, Brazil, Asset management
Switzerland Automotive
Benefits administration
Catering
Collections management
Commercial printing
Communications
Compliance
Court
Creative agencies
Credit unions
Distillery
District attorney
Drink distribution
Event management
Financial services
Fleet and facility management
Food services
Healthcare
Higher education
Human resources and payroll
Insurance
Local government
Marine asset management
Non-emergency medical
Not-for-profit organizations
Paratransit operators
Parking
Property management
Public transit operators
Real estate brokers and agents
12Operating Primary Location of Primary Vertical Markets
Group Geographic Significant Offices
Markets
Rental
Research management
Retail management and
distribution
Ride share
School administration
School and special library
School transportation
Taxi dispatch
Utilities
Harris Operating North America, Canada, United States, Asset management
Group Continental Germany, Israel Collections management
Europe Communications
County
Education
Electric utilities
Food services
Healthcare
Higher education
Local government
Manufacturing design
Municipal
Notaries
Not-for-profit organizations
Project management
Public safety
Retail management and
distribution
School administration
School and special library
Small and medium sized
businesses sector
Water utilities
Total Specific Continental Netherlands, Romania, Accountancy
Solutions Europe Denmark, Finland, Association management
Operating Group France Automotive
Education
Fashion retail
Financial services
Healthcare
Home & community care
Horticulture
Hospitality
Insurance
Local government
Long term care
13Operating Primary Location of Primary Vertical Markets
Group Geographic Significant Offices
Markets
Manufacturing plant
performance
Notaries
Pharmacies
Project management
Public housing authorities
Public transit operators
Quality management
Retail management and
distribution
Private Sector
Segment
Jonas Operating North America, Canada, United States, Advertising and marketing
Group UK, UK, Australia Attractions
Continental Construction
Europe, Education
Australia Event management
Field service
Financial services
Food services
Health clubs
Higher education
Hospitality
Inspections and management
Legal
Leisure centres
Marinas
Metal service centres
Moving and storage
Ombudsman
Private clubs and daily fee golf
courses
Product licensing
Pulp and paper manufacturers
Radiology & laboratory
information services
Retail management and
distribution
Salons and spas
Small and medium sized
businesses
Winery management
14Perseus North America, Canada, United States, Advertising and marketing
Operating UK Pakistan Agriculture equipment dealers
Group Auto clubs
Buy here pay here dealers
Financial services
Healthcare
Healthcare electronic medical
records
Home & community care
Homebuilders
Lease management
Long-term care
Outdoor equipment dealers
Pharmaceutical and biotech
manufacturers
Pulp and paper manufacturers
Real estate brokers & agents
RV and Marine Dealers
Vela Operating North America, United States, Aerospace
Group UK, Continental Australia, Germany, Asset management
Europe, Slovenia, Croatia Association management
Australia Automotive
Cabinet manufacturers
Construction
Design and welding
Financial services
Food services
Grocery
Healthcare
Higher education
Housing finance agencies
Legal
Local government
Made-to-order manufacturers
Manufacturing plant
performance
Mining
Multi-carrier shipping
Multi-channel distribution
Municipal treasury & debt
Oil and gas
Public housing authorities
Publishing
Real estate brokers and agents
Retail management and
distribution
Small and medium sized
businesses sector
Supply chain optimization
Textiles and apparel
15Third party logistics warehouse
management systems
Tire distribution
Tour operators
Waste management systems
Wholesale distribution
Window and other dealers
Window manufacturers
Products
We have numerous software products that we sell, service, support and enhance. We have at least
one software product in each of our vertical markets and often develop and support multiple product
lines in a particular vertical market. In addition, and as a complement to our acquired and internally
developed software products, we license certain technologies used in our software products from
third parties, generally on a non-exclusive basis. Our products are typically designed to assist our
customers in automating as many aspects of their business processes as is practical. While our
strategy is to provide mission critical software solutions to all of our customers, the particular
software products that we develop can vary substantially across vertical markets. For example, in
the public transit market one of the mission critical aspects of the business that we help automate is
the scheduling and routing of vehicles. In the private club market we focus on providing membership
accounting and point of sale solutions. Our goal is to continue to focus our efforts on software
products specialized for specific vertical markets.
Sales and Distribution Strategy
We use direct sales forces in most of our major markets as our primary distribution channel. We
believe that direct sales teams increase our visibility and market penetration, encourage long-term
customer contact and facilitate sales of additional products. Our sales and marketing teams work
primarily within dedicated sales groups for each of the vertical markets that we currently serve. Our
sales and marketing strategy is to provide relevant business expertise directly to target customers by
using sales representatives with strong industry specific knowledge. We use a combination of field
sales and inside sales where appropriate. Part of our ongoing revenue growth is achieved through
selling complementary products and/or services to existing customers. We also support our sales
efforts with marketing that creates awareness of our products through appearances at major trade
shows, advertising in trade magazines, hosting users’ group meetings, and the creation of informative
websites.
Research and Development
Our product development strategy combines innovation and the introduction of new technologies,
with a commitment to the long-term support of our customers’ current systems. Our research and
development activities are focused on designing, developing, testing and integrating new add-on
products which enhance the features and functionality of our existing software solutions. We also
seek to offer streamlined upgrade and migration tools for our customers.
We rely primarily on our in-house capabilities to develop our software solutions using industry
standard software development tools. However, when it is not strategic to our business and is more
cost effective, we will license certain technology components from third party providers.
Intellectual Property
16In accordance with industry practice, we rely on a combination of contractual provisions and patent,
copyright, trademark and trade secret laws to protect our proprietary rights in our products. We
generally license the use of our products to our customers rather than transferring title to them. These
licenses contain terms and conditions prohibiting the unauthorized reproduction, disclosure, reverse
engineering or transfer of our products. In addition, we attempt to protect our trade secrets and other
proprietary information through agreements with suppliers, employees and consultants. All material
components of our products have been developed by individuals most of whom have assigned all
rights to us, except for commercially-available components.
Foreign Operations
For fiscal 2019, approximately 44% of our revenues were transacted in the United States, 14% in
Canada, 34% in UK/Europe and 8% in the rest of the world. No single customer accounted for more
than 1% of our total revenues in fiscal 2019. For more details, see the financial statement note
entitled “Operating segments” included in the consolidated financial statements for the year ended
December 31, 2019, a copy of which is filed and is available on SEDAR at www.sedar.com.
Competition
Competition for the licensing of vertical market software is generally based upon several factors
including product features, the availability of high quality maintenance and support, price and the
knowledge of the software vendor’s sales team. We operate in many different verticals and our
competitive position varies depending on the specific vertical.
Our significant competitors in the public sector include Xerox, IBM Software, Inc., Oracle
Corporation, Tyler Technologies, Inc., INFOR, Cisco Systems Inc, HP, Nokia, Amdocs, McKesson
Corporation, Cerner Corporation, Epic Systems Corporation, Thomson Reuters Corporation,
Allscripts Healthcare Solutions Inc., Sage Software Inc., Intuit, and athenahealth Inc.
In the private sector, our significant competitors include Oracle Corporation, Sage Software Inc.,
and Roper Industries, Inc.
Employees
For fiscal 2019, we had an average of approximately 20,500 full-time employees globally. As at
December 31, 2019, we had approximately 23,000 full-time employees. No union represents any of
our employees in their employment relationship with us, although a number of our European
businesses have workers’ councils.
Risk Factors
The Company’s business is subject to a number of risk factors, including those risk factors set forth
below. Additional risks and uncertainties not presently known to us or that we currently consider
immaterial may also impair our business and operations and cause the price of our securities to
decline. The Company’s external counsel advise us that securities regulations require that we provide
a list of risk factors which might influence an investor’s decision to purchase CSI’s securities. As
managers and directors, we do not believe that the next several pages of risk factors will add
materially to your understanding of our business, but they are in form and substance, similar to what
other companies like CSI provide. They do include quite a number of possible, though not
necessarily probable, reasons for future setbacks.
17We cannot assure you that we will sustain profitability in the future. If we do not maintain
profits our share price may decline.
As we continue to grow our business, our operating expenses and capital expenditures may increase,
and as a result, we will need to generate additional revenue to maintain profitability. If our revenues
decline, we may not be able to sustain profitability because many of our expenses are fixed in the
short term and cannot be easily or quickly reduced. A failure to maintain profitability could
materially and adversely affect our business.
We periodically review the estimated value of acquired intangibles and goodwill to determine
whether any impairment exists and we could write-down a portion of our intangible assets and
goodwill as part of any such future review, which occurs when impairment indicators exist or, in the
case of goodwill, at least once annually. We occasionally review opportunities to reorganize
operations and may record restructuring charges in connection with any such reorganization. Any
write-down of intangible assets or goodwill or restructuring charges in the future could affect our
results of operations materially and adversely and as a result our share price may decline.
Our quarterly revenues and operating results may fluctuate.
Factors which may cause our revenues and operating results to fluctuate include:
• the demand for our software products and the market conditions for technology spending;
• patterns of capital spending and changes in budgeting cycles by our customers;
• the timing of acquisitions and related costs;
• our ability to acquire or develop (independently or through strategic relationships with third
parties), to introduce and to market new and enhanced versions of our software products on
a timely basis;
• the number, timing and significance of new software product announcements and releases
by us or our competitors;
• the level of software product and price competition;
• the geographical mix of our sales, together with fluctuations in foreign currency exchange
rates;
• market acceptance of new and enhanced versions of our software products;
• changes in personnel and related costs;
• the amount and timing of operating costs and capital expenditures relating to the expansion
of our business;
• changes in the pricing and the mix of software solutions that we sell and that our customers
demand;
• seasonal variations in our sales cycles; and
• order cancellations and shipment delays.
In addition, we expect that a substantial portion of our revenue will continue to be derived from
renewals of maintenance arrangements with our customers. These maintenance arrangements
typically last from three months to 12 months, and the timing of cash collections of related revenues
varies from quarter to quarter.
In addition, our new license revenue may fluctuate significantly on a quarterly and annual basis in
the future, as a result of a number of factors, many of which are outside of our control. The sale of
a new license generally requires a customer to make a purchase decision that involves a significant
commitment of capital.
18We may be unable to identify and complete suitable platform acquisitions and acquisitions in our
existing vertical markets.
We cannot be certain that we will be able to identify suitable new acquisition candidates that are
available for purchase at reasonable prices. Even if we are able to identify such candidates, we may
be unable to consummate an acquisition on suitable terms. When evaluating an acquisition
opportunity, we cannot assure you that we will correctly identify the risks and costs inherent in the
business that we are acquiring. If we were to proceed with one or more significant future acquisitions
in which the consideration consisted of cash, a substantial portion of our available cash resources
may be used or we may have to seek additional financing to complete such acquisitions.
Any failure to manage our growth through acquisitions effectively or integrate other businesses
we acquire may lead to a disruption in our operations and adversely affect our operating results.
Since our inception we have made hundreds of acquisitions and we plan to continue to make
acquisitions in the future. Growth and expansion resulting from future acquisitions may place a
significant demand on our management resources. Integration of our completed acquisitions and any
future acquisitions involves a number of special risks, including the following:
• failure to integrate successfully the personnel, information systems, technology, and
operations of the acquired business;
• failure to maximize the potential financial and strategic benefits of the transaction;
• failure to realize the expected synergies from acquired businesses;
• possible impairment of relationships with employees and customers as a result of any
integration of new businesses and management personnel;
• possible losses from liabilities assumed in customer contracts;
• impairment of goodwill; and
• reductions in future operating results from amortization of intangible assets.
Future acquisitions are accompanied by the risk that the obligations and liabilities of an acquired
company may not be adequately reflected in the historical financial statements of such company and
the risk that such historical financial statements may be based on assumptions, which are incorrect
or inconsistent with our assumptions or approach to accounting policies. We may not be able to
manage such expansion effectively and any failure to do so could lead to a disruption in our business,
a loss of customers and revenue, and increased expenses.
We may acquire contingent liabilities through acquisitions that could adversely affect our
operating results.
We may acquire contingent liabilities in connection with acquisitions we have completed, which may
be material. Although management uses its best efforts to estimate the risks associated with these
contingent liabilities and the likelihood that they will materialize, their estimates could differ
materially from the liabilities actually incurred.
Demand for our software solutions may fluctuate with market conditions which may reduce
our profitability in the future.
We depend upon the capital spending budgets of our customers. World and regional economic
conditions have, in the past, adversely affected our licensing and support revenue. If economic or
19other conditions reduce our customers’ capital spending levels, our business, results of operations
and financial condition may be adversely affected. In addition, the purchase and implementation of
our software solutions can constitute a major portion of our customers’ overall IT budget, and the
amount customers are willing to invest in acquiring and implementing such software solutions has
tended to vary in response to economic, financial or other business conditions. Challenging
economic conditions may also impair the ability of our customers to pay for software solutions they
have purchased. As a result, reserves for doubtful accounts may increase.
If our customers demand performance guarantees, the costs and risks associated with
offering our software solutions may increase.
We and our competitors are sometimes requested to provide specific performance guarantees with
respect to the functionality of certain aspects of our software solutions. Similarly, we have been
requested to quote fixed-price bids for our software solutions. These requests present risks, because
implementations of our software solutions are rarely identical, and therefore we cannot accurately
predict precisely what will be required to meet these performance standards. If these guarantees and
fixed price bids become more common, our profitability may be affected.
We face competition from other software solutions providers, which may reduce our market
share or limit the prices we can charge for our software solutions.
Given that we serve numerous vertical markets, we face competition from a large number of
competitors ranging in size from small private companies with annual revenues of less than $1
million per year to the larger enterprise resource planning vendors. As a result, in certain market
segments, competition can be intense, and significant pricing pressure may exist. To maintain and
improve our competitive position, we must continue to develop and to introduce, in a timely and
cost-effective manner, new software solutions. In addition, we expect that a substantial portion of
our revenue will continue to be derived from renewals of maintenance arrangements with our
customers. Although we have experienced relatively stable and predictable attrition relating to these
arrangements, increased competition could reduce the need for our maintenance services, as
customers could decide to replace our software applications with a competitor’s applications or
arrange for a third party to provide maintenance services.
We anticipate additional competition as other established and emerging companies enter the market
for our software products and as new products and technologies are introduced. For example,
companies that historically have not competed in one of our market segments could introduce new
applications based on newer product architectures that could provide for functionality similar to or
better than our software products. In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with third parties, thereby
increasing the ability of their products to better address the needs of our prospective customers. This
risk has increased as our industry trends toward consolidation. Accordingly, it is possible that new
competitors or alliances among current and new competitors may emerge and rapidly gain significant
market share. This competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share for our software products.
Some of our competitors and potential competitors have greater financial, technical, marketing, and
other resources, greater name recognition, and a larger installed base of customers than we do. The
products of some of our competitors are based on more advanced product architectures or offer
performance advantages compared with some of our more mature products. Our competitors may
be able to respond more quickly to new or emerging technologies and changes in customer
requirements or may devote greater resources to the development, promotion, and sale of their
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